GCR Affirms Nigeria Mortgage Refinance Company Plc’s National Scale Rating of BBB+(NG); Outlook Stab

19 Sep 2017 In Rating Notifications

GCR Affirms Nigeria Mortgage Refinance Company Plc’s National Scale Rating of BBB+(NG); Outlook Stab

Lagos, 19 September 2017—Global Credit Ratings has affirmed Nigeria Mortgage Refinance Company Plc’s public national scale ratings of BBB+(NG) and A2(NG), in the long and short term respectively; with the outlook accorded as Stable.  The ratings are valid until August 2018.

RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above indicative credit rating based on the following key criteria:

Nigeria Mortgage Refinance Company Plc (“NMRC”, “the company”) is a private sector entity with a public purpose. Two public sector related entities currently own 36.6% of NMRC’s shares, with the remainder diversely owned by local financial institutions (banks and non-bank financial institutions). As a public purpose entity, NMRC is expected to enjoy government support (if needed), as demonstrated by the guaranteeing of its maiden debt issuance programme by the Federal Government of Nigeria.

NMRC appears to be on track in the execution of its maiden five-year strategic plan, with notable progress evident in the area of market development (particularly, the development and implementation of generally accepted uniform underwriting standard (“UUS”)). However, the pace of advancement in mortgage re-financing activities was initially constrained by the dearth of eligible mortgages and, more recently, high funding costs. Consequently, apart from the Series 1 Bonds (N8bn) issued under its N140bn DIP in 2015, no further Series’ have been issued under the DIP to date.

While the prescribed eligibility criteria as per the UUS have not been fully met by the mortgages refinanced thus far, credit risk has been well managed through the adoption of stringent acceptance criteria, with nil non-performing loans (“NPLs”) reported so far.

NMRC is adequately capitalised at its current risk level, ending FY16 with a strong risk weighted capital adequacy ratio (“RWCAR”) of 101% (more than ten times the statutory minimum requirement), as internal capital generation saw shareholders’ funds increase by 10.9% to N8.6bn in FY16.

An after-tax profit of N1.3bn was achieved in FY16, representing a 164.7% increase over the FY15 level. However, performance (so far) has been supported largely by non-core income, with mortgage refinance loans contributing a low 14.2% of FY16 reported interest income. The bulk (66.6%) of interest income emanated from NMRC’s investments in FGN securities, while the remainder was derived from placements with banks. Although operating expenditure rose by 13.1% in FY16, the effect on key efficiency indicators was neutralised by firmer income growth, with the cost ratio ending lower at 56.1% (FY15:73.9%).

Based on NMRC’s performance so far, management has demonstrated strong commitment and ability to fully implement the company’s envisioned business plan.

The establishment and sustenance of a strong financial track record, together with clear evidence of implementation of the mandate, would be positively considered. A negative rating action may follow a significant underperformance of the financial projections, evidence of management’s inability to fully implement the proposed business plan and operational structure, or a reduction in the likelihood of government support.

NATIONAL SCALE RATINGS HISTORY

Initial rating (May 2015)                                             
Long term: BBB+(NG)                                                                                 
Outlook: Stable                                                      

Last rating (June 2016)                                             
Long term: BBB+(NG) 
Short term: A2(NG)                                                                                 
Outlook: Rating Watch

                                                     
ANALYTICAL CONTACTS

Primary Analyst                
Julius Adekeye
+23 41 462 2545  
.(JavaScript must be enabled to view this email address)


Committee Chairperson
Dave King
.(JavaScript must be enabled to view this email address)

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Banks and Other Financial Institutions, updated March 2017

NMRC rating reports, 2015-16

Glossary of Terms/Ratios (February 2016)

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK:  HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.COM.NG.

SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for 12 months, or as indicated by the applicable credit rating document.

The ratings were solicited by, or on behalf of Nigeria Mortgage Refinance Company Plc, and therefore, GCR has been compensated for the provision of the ratings.

Nigeria Mortgage Refinance Company Plc participated in the rating process via face-to-face management meetings and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit ratings above were disclosed to Nigeria Mortgage Refinance Company Plc with no contestation of/changes to the ratings.

The information received from Nigeria Mortgage Refinance Company Plc and other reliable third parties to accord the credit ratings included the audited annual reports for the year ended 31 December 2016 and the company’s 5-year strategic plan. In addition, other information specific to the rated entity and/or industry was also received.

 

 

 

 

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright © 2013 Global Credit Rating Company Limited. THE INFORMATION CONTAINED HEREIN MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED , IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. The ratings were solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR has been compensated for the provision of the ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information. GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained herein must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.

Click on logo below to view more information about Global Credit Ratings Africa

Recent Rating Reports

10 Oct 2017: Rand Merchant Bank Nigeria Limited

10 Oct 2017: Leadway Assurance Company Limited

10 Oct 2017: North South Power Company Limited

10 Oct 2017: First Bank of Nigeria Limited

10 Oct 2017: Nigeria Mortgage Refinance Company Plc

10 Oct 2017: Dangote Cement Plc

10 Oct 2017: Fortis Microfinance Bank Plc

10 Oct 2017: Flour Mills of Nigeria

10 Oct 2017: Sterling Investment Management SPV PLC

10 Oct 2017: FSDH Merchant Bank Limited

Purchase Rating Reports

Parties interested in purchasing individual or sectoral rating reports and/or bulletins from Global Credit Rating Company Limited are kindly requested to contact us on the following telephone numbers or email address.

Telephone: (+2341) 462 2648, 460 5001, 0805 615 8393, 0803 352 871

Email: bisi@warltd.com

Email: tunde@globalratings.net

Recent Bulletin Releases
Rating Sectors
Credit Ratings

For a full list of Credit Ratings performed by Global Credit Ratings Company Limited please click here